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Numbers: How Many TPAs are There? Explanation and Legal Liability Factors

By SPBA Past President Fred Hunt (Written January 2012)

January 2012   

    BEWARE STATISTICAL DISTORTIONS:   SPBA is often asked “How many TPAs are there?”. The answer is multi-facetted and (not by design) may sound like double-talk. It is best if you read it once, open-minded, purely for the insight. Then re-read for specific reference to your situation.    I have to start with a big disclaimer.  I always warn that every number or statistic about TPAs, health care & costs, employee benefits, etc. have a built-in 1,000% distortion factor.  It is not that anyone is lying.  It is merely that even the most simple vocabulary terms have vastly different meanings & usage in the employee benefits, insurance and medical communities in which TPAs operate.  For example, one "life" can refer to one individual in a plan....or it might be an employee + spouse + 10 children.  Even highly-respected sources of statistics get distorted results.  Let me demonstrate by anecdote.  A few years ago, I was asked to serve as a judge of a federal government panel of experts.  It was about 20 of the top statistical research agencies of government, such as GAO, CMS, Bureau of Labor Statistics, Congressional Research Service, White House Office of Economic Advisors, etc.   My role was purely ceremonial.  About 25 of the same questions had been planted in studies of these research organizations. These were all very basic questions (including number of self-funded plans & size of TPA market).   Each group came before me and was very proud of their methodology & credentials.  However, their findings for the same items were tens of millions of people different and tens of billions of dollars different.  So, the moral of the story is even if you find some very official & impressive-seeming sources for a statistic.....variations of 1,000% will be found.

So, to protect your credibility, and the credibility of how you use the statistics, have a clear caveat that vocabulary variations can lead to vastly different numbers.
  HOW BIG IS THE TPA MARKET?
So, where does that leave us?  Based on the various statistics & reports and occasional access to raw survey data and market terminology, my best estimate based on cross-referencing relevant parts of the various data, is that 52-55% of all US covered workers in non-federal-government plans are in plans administered to some degree by a TPA entity.  That is a conservative number, because there is also the term ASO (Administrative Services Only) used to describe the insurance companies providing TPA services to self-funded plans.  Today, over 90% of the business of some of the largest US insurance companies is ASO (which is simply a different marketing term to describe TPA).  There are also many law firms, CPAs, consultants and others who perform TPA-like duties.  Indication of how many entities are doing "TPA" work but not calling it TPA can be seen by looking at the US Dept. of Labor filings of outside administrators filing Form 5500 for ERISA plans.  There are about 10 times as many administrative entities filing 5500 forms as SPBA would consider comprehensive service employee benefits TPA firms.  So, the percentage of workers in plans being administered by an entity doing TPA-like duties (no matter what they call themselves) is probably vastly larger than my conservative 52-55% estimate.  So, any decision impacting "TPAs" and their function would have a major national impact on US workers’ employee benefit plans.
  TPA LEGAL ROLE & LIABILITY:
One factor in the confusion of number of TPAs is that the duties are not uniform or understood.  The role of a TPA for client employer or employee benefit plan is like law firms, or tax-preparation firms.  It is expertise & administrative skill being bought, period.  So, just as no one would ask a law firm or a CPA firm to pay from their pockets for charges related to the client, it is equally preposterous to assume TPA firms should be liable to pay for money sought from their clients. Like lawyers, CPAs, etc., TPAs are only empowered to do things specifically delegated to them.  For example, some clients ask the TPA to process, sign & send claim checks.  Other clients want the checks prepared, but the client will do final review, signature and/or payment.  Similarly, some clients fund a trust or account from which the TPA pays the claim.  In many others, the TPA will notify the client to transfer sufficient funds to a claims account to pay for a claim (and remember that any ruling about "TPAs" would include a few thousand law firms, CPAs, etc. etc. doing TPA functions).  If there is any reason that funding is slow in arriving...whether slow funding by the employer or lost in the US Postal Service, bank error, a question about eligibility of the person, or whatever, that is certainly not the fault of the TPA.  The most common reason for delay or denial of a claim out of the control of the TPA are things like slow or no response from the medical entity for necessary detail or explanation of treatment or cost.  (See note on careful payment below.)  For example, there was a Congressional testimony concerning a hospital bill for an 8-day recuperation hospitalization for an 80-year-old man after his pregnancy test.  That is an obvious example of a bill that should be questioned and/or not paid, but it demonstrates the need for clarification before writing a check for a submitted bill.  Besides these logistical real-world examples, the key point is that just like a taxpayer is responsible for paying the taxes, not the tax-preparer......and a defendant is fined or jailed, not the lawyer......legal liability for the functions of a plan ultimately remain the responsibility of the client plan or plan sponsor.  The TPA is a hired clerical function. 

In a self-administered plan, where an employer does the benefit plan administrative duties with in-house staff (instead of an outside TPA), would employee Jane Doe be forced to pay from her pocket if there were some claim dispute??  Jane Doe and a TPA are hired for the same purpose, and should have the same legal treatment.

The federal Employee Retirement Income Security Act of 1974 (ERISA) was written to be the ultimate consumer-protection law.  It is very successful in that goal, with very active enforcement.  Many practices that would be fine in regular commerce or in insurance companies can be federal criminal (jail) offenses under ERISA.  The two goals of ERISA are to assure that plan participants get the benefits they are promised in the plan document (no more, no less) AND that the security and usage of plan assets (what pays claims) be expended with scrupulous prudence.  Again, criminal and/or civil charges can be brought for failure in these priorities.  CONSEQUENTLY, caving into pressure or convenience and paying a bill that may not meet the strict test of prudence for any of a host of reasons IS NOT AN OPTION!    People get self-funded plans mixed up with insurance companies.  Claims money from an insured policy belongs to the insurance company, so the insurer has much more discretion of how to use their own money.  Insurers may not like it when they decide to cave-in under pressure or pay something they are not sure is correct. However, unlike self-funded plans, no one will throw them in jail for imprudent use of plan assets.  TPAs are overwhelming used in self-funded plans, so reference to TPA and TPA client plans is almost always involving a self-funded plan, the majority of which are subject to ERISA responsibility.

The word "fiduciary", especially ERISA Fiduciary duty, is often misunderstood and misused.  It is, again, a vocabulary issue.  Every plan has an official Administrator/trustee(s)... (which is NOT the hired TPA)...named in the plan document.  This is usually a person or title or a group of trustees in the sponsoring organization of the plan.  That official plan sponsor "Administrator"/trustee(s) is the ultimate Fiduciary.  That "Administrator"/trustee(s) often decides to hire an outside professional firm to provide plan administration services (much like they might hire an outside law firm, accounting firm, etc.)  The TPA is that hired entity to whom the plan might delegate some duties.   Even though the official sponsor "Administrator"/trustees always retains the ultimate fiduciary duty, for enforcement purposes, the US Department of Labor may apply some proportional degree of fiduciary duty to any one or entity which exercises any discretionary authority in the plan.  This might be a tiny sliver of fiduciary duty, or larger.  How much only comes up when DOL is doing an investigation.  So, calling a TPA a "fiduciary" often has a tiny technical application, but the TPA is never "the" (official total) Fiduciary, because that would mean that the TPA is running its client, and the official "Administrator"/trustees would be on their way to jail for dereliction of duty and breach of fiduciary duty.  So, other than in the workings of DOL investigations, Fiduciary means the plan sponsor "Administrator"/trustees. Fred   Fred Hunt, is SPBA's Active Past President, after 30 years as SPBA President, and began his involvement in employee benefit laws & regulation when he was involved in the process when the ERISA law was being deliberated & written.